As a Berkeley rental property investor, the possibilities are that the concern of buying a property with a Homeowners Association (HOA) will come up sooner or later. The same is true if you invest in single-family properties built in the last 20 years, where Owners Associations are very common. The most crucial thing to remember about buying a property with an HOA is that they include both good and bad features.
The added oversight and restrictions of owning a property with an Owners Association can be both an advantage and, sometimes, create a headache or two. So, before you invest in a rental with an Association, think about these positive and negative sides. Afterward, you may decide on the one that is best for you.
HOA Defined
In the beginning, you must know what an HOA is and what they do. HOAs get a lot of criticism and bad press, not all of which is merited. This is because HOAs exist largely to help maintain certain standards within the community. While the governing boards of some Associations are comprised of community residents, others are overseen by the community’s developers; some have professional management, while some don’t.
All Owners Associations have governing documents called covenants, conditions, and restrictions (CC&Rs), which interpret the rules and requirements for property owners in the community. Once you purchase a property with an HOA, you automatically become a member and are required to pay any related Association assessments. These assessments are needed to maintain common areas and any other amenities the community may offer, such as parks, recreation centers, etc.
No two Associations are alike, so it is advisable to do your research and examine the specific HOA documents for any property you want to buy.
Potential Benefits
Because HOAs can vary extensively, it is imaginable to purchase a single-family property with an HOA that comes with many benefits.
For instance, some HOA communities offer beautiful, private amenities such as swimming pools, parks, playgrounds, tennis courts, or a recreation center or gym. Presenting renter access to these amenities (if allowed by the governing documents) can be a big selling point for a rental house, something that may make finding and keeping tenants quicker.
One more amazing perk of some HOAs is that they may give common area and sometimes even front yard maintenance. Depending on the community, they could include trash removal services or snow removal. Consenting the HOA to execute even a few maintenance tasks can reduce the burden of a Berkeley property manager.
Many people prefer residing in communities with HOAs because they appear to be cleaner and maintained better. Not only is this advantageous for property values, but it can also be a huge selling point for prospective tenants.
Potential Disadvantages
Unquestionably, there are also a few potential negative outcomes to owning a rental property in an HOA. For the most part, homeowners who are unhappy about their Association feel that way because they’ve either decided they don’t like (or don’t want to respect) the community rules or don’t like paying their assessments. However, the main concern for property investors is that sometimes HOAs will set restrictions on your ability to lease the property you own.
For example, numerous Associations are now prohibiting owners from using their investment properties as vacation or short-term rentals. Some HOAs even restrict or prohibit long-term rentals in the community. There may also be rules about how long the property owner must occupy the house before renting it to others.
An HOA can also give headaches for rental property owners by requesting special assessments for unplanned costs or requiring property owners to conduct additional tenant screening. These are only a few situations, but because every HOA is different, you may encounter all sorts of restrictions, major and minor. Association assessments will take a chunk out of your cash flows, and it’s not always possible to raise the rent enough to cover the amounts fully.
Suppose you do decide to purchase a property with an HOA. Consequently, you’ll also have to budget extra funds for special assessment costs, which don’t come up too often but can be large amounts, especially if the community is older and in need of repair or replacing big-ticket items.
At last, selecting whether to buy a single-family rental in an Owner Association depends on whether the pros outweigh the cons. It also depends on the individual community and HOA and how likely the governing board is to meddle in the leasing process. This makes it vital to chat to other property owners in the area, read the documents meticulously, and understand exactly what you are getting yourself into. This is excellent advice for any purchase, but primarily when buying a property with an Owners Association.
Would you like a local expert’s advice on a property or community? We can assist you! Contact Real Property Management Pacific to learn how we help rental property investors like you find profitable investments.
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